Janet Yellen spoke about the current status of interest rates in regards to the Federal Reserves’ commitment to maintaining extremely accommodative Fed Funds rates set between 0 and ¼%. I think interest rate will rise sooner rather than later. What then is the implication for gold price?
Janet Yellen lives on a different planet. The RBA has stated repeatedly that interest rates will not rise until underlying inflation is consistently in the 2-3% range. That won't happen until rising wages put pressure on the labour market. Lowe is saying that the rates will remain low at least until 2024. That won't stop the inflation mongers though which could see the POG rise. But I don't think it'll moon. On the other hand when these fears around inflation slink back into the shadows from whence they came, we could very well see the POG fall. Inflation FUD surfaces every few years. So far it's just been FUD.
Yelen got put in her place by Powell after some big statements last week which she has now reversed. As I understand it the entire debt market would implode if rates were to rise closer to 2% and we would likely see global solvency issues including the US govt. I do think we will see some consumer price inflation on the back of supply chain issues (covid related) but I expect like most of 2000s we will see asset inflation and CPI stay relatively stable. The only way I can see the fed putting on the brakes is if CPI runs out of control and it’s blood on the streets. But even then, I think they do a good job of changing the data metrics (food, energy etc.) before it gets to that point. I don’t really have a base case but this seems like the most likely from what I can understand.
(a) The Secretary of the Treasury makes fiscal policy refers to the tax and spending policies of the federal government (b) The Chairperson of the Federal Reserve conducts monetary policy to achieve macroeconomic objectives such as price stability, full employment, and stable economic growth These two roles used to be clear and distinct. Now, having a former (b) become (a) while trying to exert influence as if she is still (b) is an indication of how far those two roles have blurred in this 'Age of Perpetual Stimulus'.
This point is probably the more important topic for future discussion. It’s truly a blurring of lines between fed and treasury or govt. and bank.
(a) should be making the economic decisions rather than (b) which should be sticking to its original charter, unfortunately as (a) is a former (b), (a) is just perpetuating the Monetarist line.
Interest rates do not rise because countries only take out loans but never repay anything. Now they would not be able to pay the higher interest rates.
You’re talking about bonds? Even if countries issued bonds at 20% they could still afford to meet their debt obligations. Private debt would be another matter.
Interest rates are low because CBs are trying to fuel growth. It’s the only game plan in their book. Trouble is doesn’t work long term, particularly in a balance sheet recession.
